The Three Pillars of Economic Growth- by Jerry Jasinowski
The United States like most of the developed world seems locked in an indefinite cycle of slow growth such as has characterized Japan for more than a generation. The usual nostrums - lower interest rates, economic stimulus, even quantitative easing - are ineffective.
"The reality is that if U.S. economic growth continues to have a 2 percent ceiling, it is doubtful that we will achieve any of our major national objectives, "wrote former Treasury Secretary Larry Summers. "If, on the other hand, we can boost growth to 3 percent, interest rates will normalize, middle class wages will rise faster than inflation, debt burdens will tend to melt away and the power of the American example will be greatly enhanced."
But how do we get to 3 percent growth? The way I see it, there are three pillars of economic growth: people, productivity and demand - and the people factor is key to all three.
We simply as a society must do a better job of enabling people to maximize their talents and their contributions to the economy. We need to encourage college education by having the government provide assistance to reduce college debt. We also should encourage two-year community college and skills programs for those who don't want to go to college. We need to pull together the vast network of government skill training programs into a coherent whole with a website that provides one-stop shopping. Finally, we need to encourage private sector programs like the National Association of Manufacturers' Dream It-Do It skill program that provides skill training directly.
The economist Robert Gordon says the century between 1870 and 1970 was one of dramatic innovative advances unlikely to be repeated. I disagree and believe we can dramatically increase productivity if we make it a top priority. Productivity is key to growth but is anemic, suffering in part from our failure to develop human talents, and also a decline in private capital spending, less funding for R&D by government, and an environment that does not encourage innovation.
In particular, it is essential that the government have a zero-based budgeting review of existing regulations. Finally, I am convinced that the acceleration of digital technology, including the Internet of Things, can still lead to dramatic breakthroughs in productivity.
All of which brings us to the most critical missing ingredient - aggregate demand. "Lack of demand," said Summers, "creates lack of supply." We criticize business for cutting back on capital investment and R&D, but the CEOs are waiting to see indicators of rising demand before they invest. We can provide investment incentives through a significant reduction in corporate and payroll taxes, a self-funded infrastructure program and increased government R&D funding.
Also, a key factor in weak demand is our aging population. Older people tend to have most of the consumer products they need, thanks in part to the avalanche of cheap foreign-made goods. Also, younger people under economic duress are delaying marriage and family. Weak consumer demand is further aggravated by the declining birth rate. To foster consumer demand, we must offer better pay to people at the bottom of the ladder, encourage more - not less - immigration, and create a universal worker training program for all ages to help people improve their job skills. We must focus on the three pillars of economic growth.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. You can quote from this with attribution. Let me know if you would like to speak with Jerry. August 2016